Japanese Game Maker Gree Eyes More Deals As Zynga Looms

Japan-based mobile game maker Gree Inc. isn’t well known in the U.S., but it could soon be head to head with Zynga Inc. in the market for smartphone-based games.

One of Funzio’s most popular mobile games, Crime City.

Gree is big in Japan, and Zynga is big on the desktop. Neither is anywhere near dominance in mobile gaming, but both are doing deals to gain heft.

Gree, which bought game maker Funzio Inc. for $210 million Tuesday, is planning more acquisitions, said Naoki Aoyagi, CEO of Gree International, a subsidiary of the parent company based in San Francisco responsible for North American and Latin American operations.

Zynga, meanwhile, spent between $150 million and $200 million in March to buy game maker Omgpop Inc. and expand its portfolio of titles, people familiar with the matter said. The deals underscore the race to snap up hits in the fragmented mobile gaming market.

“We may be on the brink of an all-out arms race between two gaming superpowers,” said Joost van Dreunen, managing director of game research firm SuperData. Mr. van Dreunen added that while Funzio will help Gree to secure a foothold in the Western gaming market, the company will likely need to build or add more titles through acquisitions to make that position sustainable over the long term.

Mr. Aoyagi said the company is looking to acquire gaming studios in Europe and Asia, as well as technology-oriented deals for providers of payments services, mobile application networks, and technology designed to help create and develop the games themselves.

“If there are great assets, we are interested in them,” he said. “It will be a very global business. It is very important to tap into each market and be an early mover.”

In the fiscal year ended June 30, Gree reported about $226 million in net income on $795 million in sales.

Gree’s acquisition of San Francisco-based Funzio gives the company a maker of popular mobile games such as “Modern War” and “Crime City,” and access to developers that can help it pump out new titles. Gree said Funzio’s games have been downloaded more than 20 million times through Facebook, as well as on Apple Inc. and Google Inc.’s mobile platforms.

The deal helps cement the company’s strategy to provide both a social gaming platform and games themselves that ride on top of it. Last April, Gree spent $104 million to buy California-based game platform provider OpenFeint. Through OpenFeint, game developers can build hooks into their games that allow players to become registered members of OpenFeint and play against each other on its platform, similar to Apple’s Game Center.

By the end of June, Gree said it plans to release a new global gaming platform that combines its Japanese and U.S. assets. Mr. Aoyagi said Gree’s network now reaches more than 190 million users. The company’s goal is to reach 1 billion users.

By the end of this year, Mr. Aoyagi expects more than half of its revenue to come from smartphones, up from 30% now and almost nothing in the beginning of 2011. Almost 90% of the company’s revenue come from sales of virtual goods purchased in the games.

Dino Decespedes, vice president of mobile application Mobli, said gaming platforms still haven’t proved their ultimate value yet. In contrast to PC-driven social media networks like Facebook, which amassed large numbers of users before letting other application makers build on top of its service, mobile gaming networks seem to be less of a draw than the games themselves.

“It comes down to how much value comes from visiting the platform portion to playing the game,” he said.